Paying for Multiple Ecosystem Services: The Paradox

In this article, I present a non-technical summary of the paper by Jonah Busch titled Supplementing REDD+ with “Biodiversity Payments: The Paradox of Paying for Multiple Ecosystem Services”. The main argument of the paper is that there are instances when paying for biodiversity services instead of directly paying for carbon storage services can increase carbon storage. The premise of this argument is that forests do not only provide carbon storage services but also offer other ecosystem services like biodiversity. For a United Nations (UN) programme that is aimed at mitigating climate change by making payments for carbon to developing countries, it is also expected to benefit forest-dependent biodiversity by conserving forest habitat that would otherwise have been cleared. However, by not considering the biodiversity aspect directly, there is a danger that REDD+ may promote carbon storage at the expense of biodiversity by incentivising conservation of forests high in carbon storage and destroying those low in carbon storage but high in biodiversity. Authors, therefore show that both objectives can be achieved in a non-antagonistic way.

The paradox of paying for multiple ecosystem services holds in several instances. Four conditions that result in this paradox holding. First, forested land should provide both carbon storage and biodiversity services. Secondly, suppliers of forested landscapes are compensated for more than just the service. Thirdly, service process should be endogenous. Fourth, diminishing returns to carbon prices should exist. With these conditions, the paradox occurs if an additional biodiversity payment can produce carbon storage more cost-efficiently than an incremental carbon payment.

In a small site landscape, with payment based on services (i.e. carbon storage or biodiversity) and not on opportunity cost, the paradox occurs by reallocating some of the fixed funding from carbon payments to biodiversity payments, thereby incentivising new participation that brings with it carbon storage services. In a large landscape with many sites, the paradox does not occur as production frontiers slope downward, indicating that there is strict substitution between carbon and biodiversity. In the large landscape case, under the service payment method, instances exist in which allocating some funding to biodiversity would increase carbon storage as production frontiers bubble outwards. This only happens if biodiversity is more correlated with opportunity costs and carbon storage is less correlated.

In a nutshell, the paper uses and data from three landscapes to show that if REDD+ payments are based on a standard price per unit of service provided, then paradoxically it may be possible to shift a portion of funding away from carbon payments and towards biodiversity payments and obtain both more biodiversity benefits and more climate benefits. In answering and showing that both biodiversity and carbon storage can be improved, the paper is basically attending to message two from Oates which focusses on determining what levels of environmental quality are acceptable. The author shows that both biodiversity and carbon storage are important services and can be synergistically enhanced. By looking at the payment options which result in efficiency in terms of achieving carbon storage services, the paper attends to message three from Oates which focusses on instruments to use to achieve an optimal or given level of environmental quality.

One surprising thing is that the results depend so much on the correlation between biodiversity and carbon storage with opportunity costs which is not used by the current REDD+ program. It is also difficult to establish the full opportunity costs of landscapes in Africa (and developing countries generally) given that markets for land are imperfect and production is constrained by landowners lacking the resources to produce at full potential.